For the time being, Advanced Micro Devices (NASDAQ:AMD) seems to be destined to operate in Nvidia’s shadow as it plays catch-up in the AI chip space. However, this doesn’t mean it will always be in this position.
In fact, after spending some time with AMD’s management traveling through Europe, Piper Sandler’s Harsh Kumar, a 5-star analyst rated in the top 1% of the Street’s stock pros, came away “extremely impressed with the strategy as well as the competitive positioning for the MI series of products.”
Currently, the MI300 is performing “very well,” indicating it will surpass $4 billion in revenue this year. Moreover, AMD has a series of new chips set for release following the MI300, both later this year and in 2025. The MI325 is anticipated to launch later in 2024, with the MI350 expected to follow next year. Further down the line, the MI400 is slated for release in 2026. Both the MI325 and MI350 will incorporate next-generation HBM3E memory, while the MI350 will also feature CDNA4 and a 3nm process node, positioning it to compete with Nvidia’s Blackwell architecture. The MI400 is expected to give Nvidia’s Rubin architecture a run for its money.
“In total,” says Kumar, “AMD has 100+ plus customers today that are ramping with MI300 with key customers including Microsoft, Meta, and Oracle. We note that MI300 was able to successfully run Chat GPT’s latest model with a trillion parameters successfully.”
Apart from having to find a way to rein in runaway segment leader Nvidia, in the first half of the year, AMD has faced sales constraints due to production challenges with the MI series, specifically related to HBM memory supply and CoWoS limitations. “However,” says the 5-star analyst, “in 2H24 these constraints are expected to be alleviated to a significant degree.”
Kumar also sees “additional tailwinds” that will boost both the server and PC businesses. The existing infrastructure for x86 chips is now 5-6 years old, making these processors highly inefficient in terms of power consumption. With cloud and enterprise customers resuming their capital expenditures on traditional servers, the analyst views this as a “positive factor for the server segment moving forward.”
Overall, Kumar views AMD’s current valuation favorably compared to its peers in the compute segment, making it a ‘top pick’ in the large-cap space. Subsequently, Kumar rates AMD shares an Overweight (i.e. Buy) alongside a $175 price target. (To watch Kumar’s track record, click here)
28 of Kumar’s colleagues join him in the bull camp with Buy ratings, easily outgunning the 7 Holds on file and all providing the stock with a Strong Buy consensus rating. Going by the $191.03 average target, a year from now, shares will be changing hands for an 18% premium. (See AMD stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
